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Discuss Latest POF Blog Post: Everyone is Using The 4% Rule Wrong

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  • PhysicianOnFIRE
    replied
    Originally posted by dayman View Post

    Right, and if you are an early retiree physician that taxable account will mostly be filled by contributions, not decades of gains.

    POF had a really informative post at some point on how early retirees who are reasonable spenders can expect to pay little to no income tax.
    It could use an update, but here's that post from 2016. The same principles apply:

    Leave a comment:


  • SLC OB
    replied
    Originally posted by TheDangerZone View Post

    I agree in theory it would be nice to have a large Roth component but in practice, it seems most people draw their Roth down last. A large taxable account should work very well.
    Yes, but I am feeling lucky that I now (just in the last 2 years) have the options of the Mega Backdoor Roth as having no capital gains tax is better than having it!

    Leave a comment:


  • Hatton
    replied
    I think he was trying to simplify his situation to make a point. You have to factor in taxes. They do change with retirement and you completely stop payroll taxes. The money that comes out of retirement plans either by needed withdrawals or RMDs is NOT favorably taxed like capital gains. I think some people do not grasp this fact.

    Leave a comment:


  • TheDangerZone
    replied
    Originally posted by SLC OB View Post
    I was surprised at how much the rental income offset his expenses... however he never mentioned the rental expenses (water heaters, damage to property, maintenance), the taxes on the income nor the depreciation. Maybe that was too complex? But if you are bring in the taxes...
    However, it really makes me want to have more Roth space. Right now I have about 14% of all retirement fund in Roth... hoping with backdoor Roth and Mega backdoor Roth that this increases more for this exact reason of taxes in retirement!
    I agree in theory it would be nice to have a large Roth component but in practice, it seems most people draw their Roth down last. A large taxable account should work very well.

    Leave a comment:


  • SLC OB
    replied
    I was surprised at how much the rental income offset his expenses... however he never mentioned the rental expenses (water heaters, damage to property, maintenance), the taxes on the income nor the depreciation. Maybe that was too complex? But if you are bring in the taxes...
    However, it really makes me want to have more Roth space. Right now I have about 14% of all retirement fund in Roth... hoping with backdoor Roth and Mega backdoor Roth that this increases more for this exact reason of taxes in retirement!

    Leave a comment:


  • Lordosis
    replied
    Originally posted by Larry Ragman View Post
    I actually think he was talking about his marginal rather than effective rate.
    In the example he reports his effective federal rate to be 15% and a 6% state or something.

    Leave a comment:


  • VentAlarm
    replied
    Originally posted by Tim View Post

    Great rule of thumb!
    Using social media for retirement planning might not be wise.

    “I fear this error will cause many people to retire with not enough saved to last the rest of their lives as they try to cut the amount they have saved as close as possible to retire as early as possible.”

    Cutting it as close as possible is self correcting.
    That first year will be very educational. Back to work.
    If most people were retiring with 25x spending but forgetting about taxes, we would all be much better off (as opposed to the average American).

    Leave a comment:


  • Tim
    replied
    Originally posted by Hatton View Post
    Always remember taxes in your planning.
    Great rule of thumb!
    Using social media for retirement planning might not be wise.

    “I fear this error will cause many people to retire with not enough saved to last the rest of their lives as they try to cut the amount they have saved as close as possible to retire as early as possible.”

    Cutting it as close as possible is self correcting.
    That first year will be very educational. Back to work.

    Leave a comment:


  • Larry Ragman
    replied
    Originally posted by Lordosis View Post
    Maybe he is single. That is the only way to get his federal effective rate that high.

    Also in reality most early retirees will have a large taxable account
    I actually think he was talking about his marginal rather than effective rate.

    Leave a comment:


  • Lordosis
    replied
    Originally posted by dayman View Post

    Right, and if you are an early retiree physician that taxable account will mostly be filled by contributions, not decades of gains.

    POF had a really informative post at some point on how early retirees who are reasonable spenders can expect to pay little to no income tax.
    Especially if we wise up and leave high tax states!

    Leave a comment:


  • dayman
    replied
    Originally posted by Lordosis View Post
    Maybe he is single. That is the only way to get his federal effective rate that high.

    Also in reality most early retirees will have a large taxable account
    Right, and if you are an early retiree physician that taxable account will mostly be filled by contributions, not decades of gains.

    POF had a really informative post at some point on how early retirees who are reasonable spenders can expect to pay little to no income tax.

    Leave a comment:


  • Lordosis
    replied
    Maybe he is single. That is the only way to get his federal effective rate that high.

    Also in reality most early retirees will have a large taxable account

    Leave a comment:


  • Shant
    replied
    Reading the comments below the linked article made me revise my assessment of the accuracy of the headline to the article. Now I think the author can write round 2 of "everyone's doin' it wrong" using inflation instead of taxes.

    Leave a comment:


  • Dusn
    replied
    Great. I’m glad to see I wasn’t missing something major here. And since part of the withdrawal from the retirement account will be principle, you could theoretically live off of even more than $103k per year without incurring federal taxes because the principle that you’re withdrawing will not be taxed, correct?

    Leave a comment:


  • Zaphod
    replied
    Originally posted by TheDangerZone View Post

    The author states he is withdrawing from a cash balance plan and an IRA, with no taxable brokerage account. So Dusn’s scenario still holds true for federal tax.
    Agree, these are always written so strangely, even months long series that are just such tail events as to not make sense.

    I agree I still dont see how theyre paying 24% effective on withdrawals, this is a 400k income level its a bit absurd.

    Leave a comment:

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